European stocks drop as Covid concerns weigh

The Stoxx Europe 600 index fell 0.6% to 453.77, the DAX and the CAC 40 shed nearly 1% each, while the FTSE 100 index declined 0.6%

Stocks in Europe dropped on the last day of the month, quarter and first half of 2021 as investors looked past encouraging inflation data to focus on worries over the Delta variant of the COVID-19.

The Stoxx Europe 600 index fell 0.6% to 453.77. The index has advanced nearly 13% in the first half of the year, 5% for the second quarter and just over 1% for the month. The German DAX and the French CAC 40 shed nearly 1% each, while the FTSE 100 index declined 0.6%.

Travel stocks are extending their losses after a period of downward pressure, with the prospect of heightened restrictions on travel denting hopes of a late summer boost to business, said Joshua Mahony, senior market analyst at IG, in a note to clients.

That dragged names such as Carnival and TUI lower on growing fears that rising delta variant cases could soon place the U.K. on the restricted list for many international destinations, said Mahoney. The delta variant is making up the majority of U.K. cases and spreading across several countries, and some are worried that it could begin to dent the global recovery.

Data in Europe showed a consumer prices dipped to 1.9% in June from 2% in May, according to a flash estimate from Eurostat. Energy prices drove the annual rise for inflation, a 12.5% gain on the year.

Investors shouldn’t get complacent about inflation in the region, said Willem Sels, chief investment officer, private banking and wealth management at HSBC, in a note to clients. He sees the headline number hitting 2.8% by the end of the year before starting to drift lower.

While oil and other commodities will become less of a driver for inflation this year, low inventories of industrial goods mean that goods price inflation will remain with us until companies have replenished their stock, which may take several months, said Sels. And in services, the current pricing pressure we are all experiencing when trying to book a staycation or visit our favourite restaurants will remain until the supply of labour in these sectors catches up with demand later in the year.

Banks were among the biggest decliners in Europe, with shares of HSBC, BNP Paribas and Banco Santander down 1% or more each.

Auto makers were also under pressure, with shares of Porsche Automobil Holding down 4.4% and Volkswagen down 2.5%.